Military Law

Military Family Tax Relief Act of 2003

Military members and their families can benefit from the Military Family Tax Relief Act of 2003.  The Act increased the death benefits paid to survivors of deceased military members. The Act also makes many military benefits tax-free.

Death Benefits

For deaths occurring after September 10, 2001, the law doubled the death benefit from $6,000 to $12,000. This benefit is tax-free, and has since increased to $12,420. 

There's a higher payment for certain deaths. It's $100,000 if the death results from hostile actions and occurred in a designated combat operation or combat zone. It's also paid for deaths during combat training or while performing hazardous duty. Payments are made to survivors in this order:

  • The member's lawful surviving spouse.
  • If no spouse, to the child or children of the member.
  • If none of the above, to the parents, or siblings. The service member can select beneficiaries
  • The death gratuity is not paid to any other person when there are no survivors as listed above

Home Sales

Homeowners enjoy an income tax break on up to $250,000 ($500,000 if married) on gains when selling their main home. The seller must have owned and lived in the home for two years of the last five years before the sale. Special rules apply to military members.

A person on qualified official extended duty in the military may suspend, for up to 10 years, the running of the 5-year ownership-and-use period. The duty station must be at least 50 miles from the residence. If the person is residing under orders in government housing, the duty period must be more than 90 days or for an indefinite period. This benefit applies to only one property at a time.

Deduction for Overnight Travel Expenses of National Guard and Reserve Members

Reservists who stay overnight more than 100 miles away from home while in service can take an above-the-line deduction for unreimbursed travel costs. This means you can take the deduction even if you don't itemize deductions. Transportation, meals and lodging qualify. The deduction amount is limited to the rates allowed for federal employees. 

Other Benefits of the Act

  • Combat Zone Extensions Expanded to Contingency Operations. The various extensions for filing returns or paying taxes granted to those in combat zones also applies to those serving in Contingency Operations. The Secretary of Defense make the designation 
  • Department of Defense Homeowners Assistance Program. Payments made after November 11, 2003, to offset adverse effects on housing values due to military base realignments or closures aren't taxed
  • Dependent Care Assistance Program. Dependent care assistance payments for military personnel aren't taxed 
  • Military Academy Attendees. The ten percent tax on payments from a Qualified Tuition Program or Coverdell Education Savings Account not used for educational expenses doesn't apply to U.S. Military, Naval, Air Force, Coast Guard or Merchant Marine Academies students. The amount of funds that can be withdrawn without payment of the ten percent additional tax is limited to advanced education costs at such academies

Questions for Your Attorney

  • My spouse died while serving in the military, but I never received any death benefit. What should I do?
  • I'm in the military and I sold my house. Am I supposed to report the profits as income?
  • I included some military benefits as income, so I think I overpaid my income tax. Is it too late to fix the mistake? Can you help me get a refund?
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